News Column

New Zealand Energy Announces Second Quarter Results and Operational Update

September 4, 2014



ENP Newswire - 04 September 2014

Release date- 03092014 - Vancouver, British Columbia - New Zealand Energy Corp. (TSX-V: NZ, OTCQX: NZERF) has released the results of its second quarter ended June 30, 2014.

Details of the Company's financial results are described in the Unaudited Consolidated Interim Financial Statements and Management's Discussion and Analysis which, together with further details on the Company's operational activities, are available on the Company's website at www.newzealandenergy.com and on SEDAR at www.sedar.com. All amounts are in Canadian dollars unless otherwise stated.

HIGHLIGHTS

Significantly improved netback of $65.30 per barrel of oil ('bbl') during Q2-2014, compared to $62.33/bbl in Q1-2014 and $22.46/bbl during the same three-month period in 2013

19,066 bbl produced and 20,390 bbl sold during Q2-2014 (Q2-2013: 18,573 and 21,958, respectively)

Average corporate production during Q2-2014: 228 bbl/day (net to NZEC)

Total oil sales recorded during Q2-2014 of $2,723,830 (Q2-2013: $2,216,815), including $313,425 of sales on behalf of JV partner

Generated first natural gas sales ($42,043) during Q2-2014

Generated approximately $1.3 million of year-to-date third-party revenue (net to NZEC) through 50% interest in the Waihapa Production Station (2013: $Nil)

New arrangement with gas marketing counterparty commenced May 5, 2014, expected to generate between NZ$250,000 and NZ$1 million revenue per year (net to NZEC)

Realized total net proceeds of approximately NZ$1.76 million through disposal of non-core assets

As at August 29, 2014, the Company had an estimated $2.3 million in working capital (excluding materials and supplies of approximately NZ$1.9 million).

PROPERTY REVIEW & OUTLOOK

Taranaki Basin

Within the Taranaki Basin, NZEC holds a 100% interest in the Copper Moki Permit, a 100% interest in the Eltham Permit, a 65% interest in the Alton Permit with L&M, and a 50% interest in the TWN Licenses and the TWN Assets with L&M. NZEC's net Taranaki acreage totals 97,630 acres (395 km2), of which approximately 6,055 acres is offshore.

The Taranaki Basin offers production potential from multiple prospective formations, ranging from the Kapuni sandstones at a depth of approximately 4,000 metres, the Tikorangi limestones at approximately 3,000 metres, the Moki sandstones at approximately 2,500 metres, and the shallower Mt. Messenger and Urenui sandstones at approximately 2,000 metres. All of NZEC's production to date is from the Tikorangi and Mt. Messenger formations.

Total corporate production during the first six months of 2014 averaged 214 bbl/d net to NZEC. Total corporate production during the second quarter averaged 228 bbl/d in April, 201 bbl/d in May and 231 bbl/d in June. Production in July averaged 202 bbl/d, with a small increase in August (up to August 29) for an average of 205 bbl/d net to NZEC. Production fluctuations month to month are largely the result of optimization efforts on the TWN Licenses.

The TWN wells (with the exception of Toko-2B, which is on high-volume lift) are now operating on a rest and recovery mode rotation, which is intended to optimize production by allowing wells to build up pressure during the rest period and then yield flush production. The TWN Joint Arrangement ('TWN JA'), (the 50/50 NZEC/L&M Energy partnership that owns the TWN Licenses) is currently running well gradient surveys on all of the reactivated wells to help determine the optimum flow period for each well.

Production from three of the Copper Moki Permit wells has remained very stable year to date. The fourth well, Copper Moki-3, has been shut-in since early March and will remain shut-in until a revised artificial lifting system has been evaluated to deal with the sand accumulation in this highly deviated well.

TWN Licenses

NZEC and L&M formed the TWN JA, with NZEC as the operator, to explore and develop the TWN Licenses and operate the Waihapa Production Station and associated infrastructure. At the date of this MD&A, the TWN JA had advanced eight wells to production on the TWN Licenses for a total of 57,826 bbl produced since closing of the TWN Acquisition (28,913 bbl net to NZEC), with cumulative pre-tax oil sales net to NZEC of approximately $3.1 million.

The TWN JA is focused on optimizing production from its wells. As part of the optimization process, in April 2014 the TWN JA installed high-volume lift ('ESP') on the Toko-2B well. Toko-2B was chosen as the first well for ESP installation because the well had a high oil cut of approximately 20%, but had to be shut-in every few days to allow the Company to unload a water column that would build up in the well. The TWN JA expected that an ESP would allow the well to be produced continuously and would maximize oil recovery.

The ESP was operated initially using a portable generator, which limited the pumping capacity and did not adequately draw down fluid levels in the well. In May 2014 the TWN JA connected the Toko-2B ESP to a permanent power source and has increased pumping to the rate of 9,000 boe/d. While the well is still pumping through a high water load and oil production has not reached anticipated levels, the TWN JA is hopeful that continual pumping of the well will draw down the reservoir pressure sufficiently to draw oil into the well, which should allow the oil cut to increase over time.

A number of wells on the TWN Licenses, with previous production from the Tikorangi Formation, have uphole completion potential in the shallower Mt. Messenger Formation. The TWN JA recompleted one well uphole in the Mt. Messenger Formation (Waihapa-2) and achieved production from that well in April 2014. This successful recompletion confirmed that production can be achieved from an uphole reservoir. After just eight days of production, however, sand was drawn into the pump and the well has been shut-in since that time awaiting installation of a different artificial lift system.

The TWN JA has determined that jet pump is the appropriate lift for this well, since jet pump would enable any unconsolidated sand around the well bore to be produced to surface, thus reducing the potential to sand up the well. The TWN JA appointed an engineering firm to design and prepare a cost estimate for the installation of surface jet pumping facilities, and expects to make its final investment decision shortly.

If approved in Q3-2014, the well could be brought on production in Q4-2014. NZEC expects that the well will be recompleted with dual packers to segregate the upper and lower Mt. Messenger zones. This will allow the zones to be tested both separately and collectively, providing production flexibility and allowing the TWN JA to gain valuable information about both Mt. Messenger zones.

The TWN JA has identified four additional production opportunities in existing wells on the TWN Licenses, along with numerous new 3D drill targets in the Mt. Messenger, Moki, Tikorangi and Kapuni formations. The Company's ability to drill new exploration wells is contingent on its financial capacity, as discussed above.

The TWN JA continues to identify opportunities to generate revenue from the Waihapa Production Station and associated infrastructure. Third-party revenue from the Waihapa Production Station since closing the TWN Acquisition totals approximately $1,383,528 net to NZEC. In addition, during February 2014, the TWN JA entered into an agreement with a gas marketing counterparty to transport gas along a section of the TAW gas pipeline for a term of four years with a five-year right of renewal.

The arrangement is expected to generate between NZ$250,000 and NZ$1 million revenue per year (net to NZEC). First gas commenced flowing on May 5, 2014, with revenue earned since that date being applied as the TWN JA's contribution to the capital cost originally incurred by the counterparty. The TWN JA expects that its capital contribution will be paid up by the end of August 2014, from which point forward the TWN JA will receive the proceeds from the revenue associated with this arrangement.

Eltham Permit and Copper Moki Permit

To date the Company has drilled ten exploration wells on its 100%-owned Eltham and Copper Moki permits. Four have been advanced to production. Of the ten wells drilled, only one well (Wairere-1) failed to encounter hydrocarbons and was immediately sidetracked. One well (Copper Moki-4) made an oil discovery in the Urenui Formation and has been shut-in pending additional economic analysis and evaluation of artificial lift options.

Wairere-1A was drilled to the Mt. Messenger Formation and encountered hydrocarbon shows, with completion pending. Arakamu-2 made an oil discovery in the Mt. Messenger Formation and has been shut-in pending evaluation of artificial lift options. Waitapu-1 is shut-in pending further testing or sidetrack to an alternate target and Arakamu-1A, a Moki Formation well, is suspended pending further evaluation. The Company continues to assess these opportunities as new reservoir data becomes available from the Company's activities on the TWN Licenses.

NZEC is actively seeking farm-in partnerships to allow the Company to accelerate exploration of additional high-priority drill targets on the Eltham Permit.

At the date of this MD&A, the Company has produced approximately 275,323 bbl from its Copper Moki Permit wells (including oil produced during testing), with cumulative pre-tax oil sales from inception of approximately $29.7 million. Production from the Copper Moki wells has been very stable year to date, with virtually no decline in production rates during the first six months of 2014.

All of the Copper Moki Permit wells produce light 41o API oil from the Mt. Messenger Formation. Oil is trucked to the Shell-operated Omata tank farm in New Plymouth and sold at Brent pricing less standard Shell costs.

During January 2014, NZEC began delivering natural gas produced from wells on the Copper Moki site through a pipeline to the Waihapa Production Station, where it is blended with gas produced from the TWN Licenses and used by the TWN Partnership to lift the TWN JA reactivated wells and run the Waihapa Production Station compressors.

Using internally generated gas for these activities, rather than purchasing it, has significantly reduced operating costs at the Waihapa Production Station and brought modest natural gas revenue to the Company. In addition, subsequent to the period-end NZEC has sold approximately six terrajoules of Copper Moki natural gas production to a third-party.

Alton Permit

During 2014, the Company plans to drill a new exploration well on the Alton Permit. The current work program for the Alton Permit requires the Company to drill an exploration well by November 22, 2014. The Company has identified a drill target in the Mt. Messenger Formation and has received all necessary resource and land access consents required to drill the well.

However, certain conditions associated with the consents have prompted the Company to lodge an appeal for mediation. In order to allow time for the appeal and anticipated mediation, NZEC has requested an extension to the drill date to at least Q1-2015.

NZEC is actively seeking farm-in partnerships to allow the Company to accelerate exploration of additional high-priority drill targets on the Alton Permit.

Manaia Permit

The Company announced on May 1, 2014 that it had relinquished its interest in the early-stage Manaia Permit, in the Taranaki Basin, in order to focus on exploration and development opportunities with the potential to more rapidly yield additional production and cash flow for the Company.

East Coast Basin

The East Coast Basin of New Zealand'sNorth Island hosts two prospective oil shale formations, the Waipawa and Whangai, which are believed to be the source of more than 300 oil and gas seeps. Within the East Coast Basin, NZEC holds a 100% interest in the East Cape Permit which covers approximately 1,048,406 onshore acres (4,243 km2) on the northeast tip of the North Island. The Company anticipates completing fieldwork and geochemical studies on the East Cape Permit in 2014. NZEC is also actively seeking a farm-in partner to participate in and fund exploration and development in return for an interest in the permit.

The Company announced on June 23, 2014 that it had relinquished its interests in the Castlepoint and Wairoa permits in the East Coast Basin, reducing its work program commitments by $13.9 million for 2014 and $54.3 million over the life of the relinquished permits.

The work previously undertaken by the Company on these permits has yielded significant technical information and insight into the Waipawa Black Shale, which will guide the Company's exploration strategy on the East Cape Permit. In addition, NZEC's community engagement activities have allowed the Company to build strong relationships with regulators, landowners and iwi communities in the East Coast Basin.

About New Zealand Energy Corp.

NZEC is an oil and natural gas company engaged in the production, development and exploration of petroleum and natural gas assets in New Zealand. NZEC's property portfolio collectively covers approximately 1.15 million acres of conventional and unconventional prospects in the Taranaki Basin and East Coast Basin of New Zealand'sNorth Island. The Company's management team has extensive oil and gas exploration and operations experience in New Zealand.

NZEC plans to execute a technically disciplined exploration and development program focused on the onshore and offshore oil and natural gas resources in the politically and fiscally stable country of New Zealand. NZEC is listed on the TSX Venture Exchange under the symbol NZ and on the OTCQX International under the symbol NZERF.

Contact:

Rhylin Bailie

Vice President

Investor Relations

Email: info@newzealandenergy.com

Website: www.newzealandenergy.com

FORWARD-LOOKING INFORMATION

This document contains certain forward-looking information and forward-looking statements within the meaning of applicable securities legislation (collectively 'forward-looking statements'). The use of the word 'will', 'expect', 'intend', 'optimize', 'hopeful', 'will', 'should', 'would', 'could', 'plans', and similar expressions are intended to identify forward-looking statements.

These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements including, without limitation, the speculative nature of exploration, appraisal and development of oil and natural gas properties; uncertainties associated with estimating oil and natural gas reserves and resources; uncertainties in both daily and long-term production rates and resulting cash flow; volatility in market prices for oil and natural gas; changes in the cost of operations, including costs of extracting and delivering oil and natural gas to market, that affect potential profitability of oil and natural gas exploration and production; the need to obtain various approvals before exploring and producing oil and natural gas resources; exploration hazards and risks inherent in oil and natural gas exploration; operating hazards and risks inherent in oil and natural gas operations; the Company's ability to generate sufficient cash flow from production to fund future development activities; market conditions that prevent the Company from raising the funds necessary for exploration and development on acceptable terms or at all; global financial market events that cause significant volatility in commodity prices; unexpected costs or liabilities for environmental matters; competition for, among other things, capital, acquisitions of resources, skilled personnel, and access to equipment and services required for exploration, development and production; changes in exchange rates, laws of New Zealand or laws of Canada affecting foreign trade, taxation and investment; failure to realize the anticipated benefits of acquisitions and other factors as disclosed in documents released by NZEC as part of its continuous disclosure obligations.

Such forward-looking statements should not be unduly relied upon. The Company believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct.

Actual results could differ materially from those anticipated in these forward-looking statements. The forward-looking statements contained in the document are expressly qualified by this cautionary statement. These statements speak only as of the date of this document and the Company does not undertake to update any forward-looking statements that are contained in this document, except in accordance with applicable securities laws.


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Source: ENP Newswire


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